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Sr. Chapter Name Page
1. Automated Business Processes 1.1
2. Financial and Accounting Systems 2.2
3. Information Systems and its Components 3.1
4. E-Commerce, M-Commerce and Emerging Technologies 4.1
5. Core Banking Systems 5.1
CA Inter - Enterprise Information Systems
2. Financial & Accounting Systems

INTRODUCTION
This chapter is meant for providing an insight to Financial and Accounting Systems, its working, audit and its use
for business management and development. Financial and Accounting Systems forms an integral part of any business
and acts as a backbone for it. Financial and Accounting systems may include other aspects of business management
like human resource, inventory, Customer Relationship Management (CRM), etc. After going through this
chapter a student is expected to understand about —
 What is a system?
 What is ERP Sys tem?
 What is a Financial and Accounting system?
 How to use it for different purposes like accounting, auditing, business management, etc.?
 How to assess risks and controls of any Financial and Accounting System ?
INTEGRATED (ERP) AND NON—INTEGRATED SYSTEMS
What is a System?
A system may or may not be related with computer / software / information technology etc. Software /
Computer / Hardware may or may not form part of overall system.
Dictionary meaning of the word System is -
"a set of principles or procedures per which something is done; an organized scheme or method"
What is a Process?
In the systems engineering arena, a Process is defined as a sequence of events that

uses inputs to produce outputs. This is a broad definition and can include sequences as mechanical as
reading a file and transforming the file to a desired output format; to taking a customer order, filling that order,
and issuing the customer invoice.
From a business perspective, a Process is a coordinated and standardized flow of activities performed
by people or machines, which can traverse functional or departmental boundaries to achieve a business
objective and creates value for internal or external customers.
Concepts in Computerized Accounting Systems
As we are discussing about Financial & Accounting Systems, it is necessary to discuss some concepts to
understand Financial and Accounting systems in a better way.
I. Types of Data
Every accounting systems stores data in two ways: Master Data and Non-Master Data (or Transaction Data).
 Master Data: Relatively permanent data not expected to change frequently.

 Non-Master Data: Non-permanent data and expected to change frequently.
By MBA Prakash Agrawal, Vsmart Academy, Pune Page 2.1
A. Master Data: As defined above, master data is relatively permanent data that is not expected to
change again and again. It may change, but not again and again. In accounting systems, there may be following
type of master data :
Master Data
Accounting Inventory Payroll Statutory

Master Data Master Data Master Data Master Data
a. Accounting Master Data — This includes names of ledgers, groups, cost centers, accounting
voucher types, etc. E.g. Capital Ledger is created once and not expected to change frequently. Similarly,
all other ledgers like, sales, purchase, expenses and income ledgers are created once and not expected to
change again and again. Opening balance carried forward from previous year to next year is also a part
of master data and not expected to change.
b. Inventory Master Data —This includes stock items, stock groups, godowns, inventory voucher types, etc.
Stock item is something which bought and sold for business purpose, a trading goods. E.g. For a person
running a medicine shop, all types of medicines shall be stock items for him/her.
c. Payroll Master Data —Payroll is a system for calculation of salary and recoding of transactions relating
to employees. Master data in case of payroll can be names of employees, group of employees, salary
structure, pay heads, etc. These data are not expected to change frequently. E.g. Employee created in
the system will remain as it is for a longer period of time, his/her salary structure may change but not
frequently, pay heads associated with his/ her salary structure will be relatively permanent.
d. Statutory Master Data — This is a master data relating to statute/law. It may be different for
different type of taxes. E.g. Goods and Service Tax (GST), Nature of Payments for Tax Deducted at Source
(TDS), etc. This data also shall be relatively permanent. In case of change in tax rates, forms, categories,
we need to update/change our master data.
All business process modules must use common master data.
B. Non-Master Data: It is a data which is expected to change frequently, again and again and not
a permanent data. E.g. Amounts recorded in each transaction shall be different every time and expected to
change again and again. Date recorded in each transaction is expected to change again and again and will not
be constant in all the transactions.
To understand the concept of master data and non-master data in a simple way, let us co-relate this with
ourselves using following example.
EXAMPLE : Our Personal Master Data — Our Name, Name of Parents, Address, Blood Group, Gender,
Date of Birth, etc. is a personal master data and not expected to change. Our address may change, but
not frequently. Contrary to this, there may be some information about us which may fall in the category of
non- master data, i.e. not a permanent data. E.g. Date of Birth is master data but age is a non- master data,
weight is a non-master data, our likes, dislikes again is a non-master data.

Technical Concepts
A) Working of Any Software User
(i) Front End & Back End
1) Front End — It is part of the overall software which actually
interacts with the user who is using the software. Front End Front End
2) Back End — It is a part of the overall software which does not

directly interact with the user, but interact with Front End only. Back End
(II) Application Software
 An application software performs many functions such as receiving the inputs from the user,
interprets the instructions and performs logical functions so a desired output is achieved.
 In most software, there are three layers which together form the application. An application layer,
an operating system layer and a database layer. This is called a Three Tier architecture.
 The application layer receives the inputs from the users and performs certain validations like, if the
user is authorized to request the transaction.
 The operating system layer then carries these instructions and processes them using the data stored
in the database and returns the results to the application layer.
 The database layer stores the data in a certain form. For a transaction to be completed all the three
layers need to be invoked. Most application software is built on this model these days. Examples of
application software would include SAP, Oracle Financials, MFG Pro etc.
B. Installed Applications V/s Web Applications
1) Using Software : These are the two ways of using a software :
 Installed Applications are programs installed on the hard disc of the user's computer.
 Web Applications are not installed on the hard disc of the user's computer, it is installed on a
web server and it is accessed using a browser and internet connection.
There are some advantages as well as disadvantages of both types of applications as discussed
Particulars Installed Application Web Application
Installation & As software is installed on hard As software is installed on only one
Maintenance disc of the computer used by user, computer, i.e. a web server, it need
it needs to be installed on not be installed on each
computer one every by one. This may computer.
Hence, installation on user computer
take lot of time. Also, maintenance is not required & maintenance
and updating of software may take and updating of software becomes
lot time and efforts. extremely easy.
Accessibility As software is installed on the As software is not installed on the
hard disc of the user's computer, hard disc of user's computer and it is
user needs to go the computer used through browser and
only, i.e. the internet,
computer
software where to use the
is installed, it can be
in the world. used
Access to from any
the software
software. It cannot be used from computer
becomes very easy. Also, it can be
any computer. used 24 x 7.

Mobile Using the software through mobile Using mobile application becomes
Application application is difficult in this case. very easy as data is available 24 x 7.
Data Storage Data is physically stored in the Data is not stored in the user's server
premises of the user, i.e. on the hard computer. It is stored on a web
disc of the user's server computer. server. Hence user will not have any
Hence user will have full control control over the data.
over the data.
Data Security As the data is in physical control of the Data security is a big challenge in case
user, user shall have the full physical of web application as the data is not in
control over the data and he/she can control of the user or owner of data. It
ensure that it is not accessed is maintained on a web server. So it
without proper access. can be accessed without proper
Performance A well written installed application shall As access.
data is picked from web server using
always be faster than web internet, speed of operation may be
application, reason being data is slower than installed application.
picked from hard disk without
internet.
Flexibility Installed applications shall have Web applications do not even
more flexibility and control as compare to the flexibility of desktop
compared to web application. It applications.
is very easy to write desktop
applications that take advantage of
the user's hardware (cameras,
WiFi, etc)
(ii) Cloud-based Applications

 These days many organizations do not want to install Financial Applications on
their own IT infrastructure.
 For many organizations think, it is not their primary function to operate complex
IT systems and to have a dedicated IT team and hardware which requires hiring highly skilled IT
resources and to maintain the hardware and software to run daily operations.
 Thus, organizations increasingly are hosting their applications on Internet and outsource the IT
functions.
 There are many methods through which this can be achieved. Most common among them being SaaS —
Software as a Service or IaaS — Infrastructure as a Service.
Non-Integrated System
 A Non-Integrated System is a system of maintaining data

in a decentralized way.
HR Accounting Marketing
 Each department shall maintain its own data separately
and not in an integrated way. This is the major problem with
non-integrated systems.
Production Purchase
 It is non-integrated environment where all the departments
are working independently and using their own set of data. They
need to communicate with each but still they use their own data.

This results in two major problems:
1. Communication Gaps
2. Mismatched Data
Integrated Enterprise Resource Planning(ERP) Systems
 ERP is an enterprise-wide information system designed to coordinate all the resources,

information, and activities needed to complete business processes such as order fulfillment or billing.
 An ERP system supports most of the business system that maintains in a single database the
data needed for a variety of business functions such as Manufacturing, Supply Chain Management,
Financials, Projects, Human Resources and Customer Relationship Management.
 An ERP system is based on a common database and a modular software design.
 The common database can allow every department of a business to store and retrieve information
in real-time. The information should be reliable,
accessible, and easily shared.
 The modular software design should mean a business Accounts
can select the modules they need, mix and match
modules from different vendors, and add new modules
of their own to improve business performance. Purchase HR
 In order for a software system to be considered ERP,
it must provide an organization with functionality for Central DB
two or more systems. While some ERP packages exist
that only cover two functions for an organization
(QuickBooks: Payroll & Accounting), most ERP systems Production Marketing
cover several functions.
 ERP systems are used in almost any type of
organization — large or small. Some of the well-known
ERPs in the market today include SAP, Oracle, MFG Pro, etc.
Today's ERP systems can cover a wide range of functions and integrate them into one unified
database. For instance, functions such as Human Resources, Supply Chain Management, Customer Relations
Management, Financials, Manufacturing functions and Warehouse Management functions were all once stand-
alone software applications, usually housed with their own database and network, today, they can all fit under
one umbrella — the ERP system.
Advantages of an ERP System
 Ability to customize an organization's requirements;
 Integrate business operations with accounting and financial reporting functions;
 Increased data security and application controls;

 Build strong access and segregation of duties controls;

 Automate many manual processes thus eliminating errors;
 Process huge volumes of data within short time frames; and Strong reporting
capabilities which aids management and other stakeholders in appropriate decision making.
Features of an Ideal ERP System
An Ideal ERP System is that system which caters all types of needs
of an organization and provides right data and right point of time to right
users for their purpose. Hence, definition of ideal ERP system may change
per organization. But generally, an ideal ERP system is that system where a single
database is utilized and contains all data for various software modules. These software modules can
include the following:
 Manufacturing: Some of the functions include engineering, capacity, workflow management,
quality control, bills of material, manufacturing process, etc.
 Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash
management, etc.
 Human Resources: Benefits, training, payroll, time and attendance, etc.
 Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim
processing, order entry, purchasing, etc.
 Projects: Costing, billing, activity management, time and expense, etc.
Customer Relationship Management (CRM):

a. CRM is a term applied to processes implemented by a company to handle
its contact with its customers.
b. CRM software is used to support these processes, storing information on current and prospective
customers.
c. Information in the system can be accessed and entered by employees in different departments,
such as sales, marketing, customer service, training, professional development, performance
management, human resource development, and compensation.
d. Details on any customer contacts can also be stored in the system.
e. The rationale behind this approach is to improve services provided directly to customers and to use
the information in the system for targeted marketing.
Data Warehouse:
i. Usually this is a module that can be accessed by an organizations
customers, suppliers and employees.
ii. Data warehouse is a repository of an organization's electronically stored
data.
iii. Data warehouses are designed to facilitate reporting and analysis. This classic
definition of the data warehouse focuses on data storage.
iv. An expanded definition for data warehousing includes business intelligence tools, tools to extract,
transform, and load data into the repository, and tools to manage and retrieve data.
v. The process of transforming data into information and making it available to the user in a timely
enough manner to make a difference is known as data warehousing.
RISKS AND CONTROLS

Major feature of an ERP System is central database. As the complete data is stored centrally at one place,
ensuring safety of data and minimising risk of loss of data is a big challenge.
 In Non-Integrated System, data is stored by each department separately, hence this is risk is low in
such an environment.
 In an ERP environment, two major risks are faced by any organization. Also, due to central database,
all the persons in the organization access the same set of data on a day to basis. This again poses the
risk of leakage of information or access of information to non-related people. E.g. A person from sales
department checking salary of a person in production.
 Again, as there is central database, all users shall use the same data for recording of transactions. Hence
there is one more risk of putting incorrect data in the system by unrelated users. E.g. a person in
human resource department recording a purchase order. This is a risk due to central database only and
controls are needed to minimise such type of risks.
A. Risks in an ERP Environment
By and large, we say that most of the risks in ERP environment are relating to data only. These
risks can be summarised as under.
(I) Physical safety of data
a. Risk of total loss of data
b. Risk of partial loss of data
( II ) Electronic safety of data
a. Risk of unauthorised changes in data

b. Risk of partial / complete deletion of data
c.Risk of leakage of information
d. Risk of incorrect input of data
B. Risks associated and Controls required
Aspect Risk Associated Control Required
Data Access Data is stored centrally and all the departments Access rights need to be defined very
access the central data. This creates a carefully. Access to be given on "Need
possibility of access to non-relevant to know" and Need to do" basis only.
Data Safety data.
As there is only one set of data, if this data Back up arrangement needs to be very
is lost, whole business may come to stand strong. Also strict physical control is
still. needed for data.
Speed of As data s i maintained centrally, gradually the This can be controlled by removing
Operation data size becomes more and more and it redundant data, using techniques like
may reduce the speed of operation. datawarehousing and updating hardware
on a continuous basis.
Change in As the overall system is integrated, a small All the processes must be documents
process change in process for one department carefully in the beginning of
may require lot of efforts and money. implementation itself so as to avoid any
discomfort in future.

Staff Turnover As the overall system is integrated and This can be controlled and minimized with
connected with each other department, it help of proper staff training system,
becomes complicated and difficult to having help manuals, having backup
understand. In case of staff turnover, plans for staff turnover, etc.
it becomes increasingly difficult to maintain
the system.
System As everybody is connected to a singleThis can be controlled and minimized by
Failure system and central database,in case of having proper and updated back up
failure of s ys te m , t he whole of data as well as alternate hardware /
b u si ness may come to stand still may internet arrangements. In case of failure
get affected badly. of primary system, secondary system
may be used.
C. Role Based Access Control (RBAC) in ERP System
 Role-based access control is an

approach to restricting system
access to authorized users. RBAC is
sometimes referred to as Role-
Based Security.
 Role-Based-Access-Control (RBAC) is a policy neutral access control mechanism defined around
roles and privileges.
 The components of RBAC such as role-permissions, user-role and role-role relationships make it simple
to perform user assignments.
 RBAC can be used to facilitate administration of security in large organizations with hundreds of users
and thousands of permissions.
 Roles for staff are defined in organization and access to the system can be given according to
the role assigned. E.g. a junior accountant in accounting department is assigned a role of recording
basic accounting transactions,etc.
D. Types of Access
While assigning access to different users, following options are possible.
(i) Create — Allows to create data
(ii) Alter — Allows to alter data
(iii) View — Allows only to view data
(iv) Print — Allows to print data
Above type of access can be allowed / disallowed for —
a. Master Data b. Transaction Data c. Reports
AUDIT OF ERP SYSTEMS
 When evaluating controls over ERP systems, decisions must be made regarding the relevance of
operational internal control procedures to Information Technology (IT) controls.
 ERP systems should produce accurate, complete, and authorized information that is supportable
and timely.
 In a computing environment, this is accomplished by a combination of controls in the ERP System,
and controls in the environment in which the ERP system operates, including its operating system.
 Controls are divided into General Controls and Application Controls.
 General controls can be further divided into management and environmental controls.
Management controls deal with organizations, policies, procedures, planning, and so on.
 Environmental controls are the operational controls administered through the computer
centre/computer operations group and the built-in operating system controls.
Auditing aspects in case of any ERP system can be summarized as under:
(i) Auditing of Data
 Physical Safety — Ensuring physical control over data.
 Access Control — Ensuring access to the system is given on "need to know" (a junior accountant
need not view Profit & Loss Account of the business) and "need to do basis" (HR executive
need not record a Purchase Order).
(ii) Auditing of Processes
 Functional Audit —
a. This includes testing of different functions / features in the system and testing of the
overall process or part of process in the system and its comparison with actual process.
E.g. Purchase Process, Sales Process, Salary Calculation Process, Recruitment Process, etc.
b. Auditor may check this process in the system and compare it with actual process. It is
quite possible that all the aspect present in the actual process may not be integrated in
the ERP system. There may be some manual intervention.
 Input Validations —
a. This stands for checking of rules for input of data into the system. E.g. a transaction of
cash sales on sales counter must not be recorded in a date other than today (not a future
date or a back date), amount field must not be zero, stock item field shall not be empty, etc.
b. Input validations shall change according to each data input form.
BUSINESS PROCESS MODULES AND THEIR INTEGRATION WITH

FINANCIAL & ACCOUNTING SYSTEMS
What is a Business Process?
 A Business Process consists of a set of activities that are performed in coordination in an

organizational and technical environment. These activities jointly realize a business goal.
 Each business process is enacted by a single organization, but it may interact with business processes
performed by other organizations.

To manage a process-
a. The first task is to define it. This involves defining the steps (tasks) in the process and mapping
the tasks to the roles involved in the process.
b. Once the process is mapped and implemented, performance measures can be established.
Establishing measurements creates a basis to improve the process.
c. The last piece of the process management definition describes the organizational setup that
enables the standardization of and adherence to the process throughout the organization.
Aligning employees' performance reviews and compensation will support to the value creation of
the processes.
Business Process Flow
Business Process is a prescribed sequence of work steps performed to produce

a desired result for the organization.
Accounting or Book keeping cycle covers the business processes involved in recording and
processing accounting events of a company. It begins when a transaction or financial event occurs and ends
with its inclusion in the financial statements.
(a) Source Document: A document that captures data from transactions and events.
(b) Journal: Transactions are recorded into journals from the source document.
(c) Ledger: Entries are posted to the ledger from the journal.
(d) Trial Balance: Unadjusted trial balance containing totals from all account heads is prepared.
(e) Adjustments: Appropriate adjustment entries are passed.
(f) Adjusted Trial balance: The trial balance is finalized post adjustments.
(g) Closing Entries: Appropriate entries are passed to transfer accounts to financial statements.
(h) Financial statement: The accounts are organized into the financial statements.
Typical business process cycles
in a manufacturing industry are
explained under:

1. Automated Business Process

INTRODUCTION
 An Enterprise Information System (EIS) may be defined as any kind of information system which
improves the functions of an enterprise business processes by integration.
 An EIS provides a single system that is central to the organization that ensures information can
be shared across all functional levels and management hierarchies.
 An EIS can be used to increase business productivity.
ENTERPRISE BUSINESS PROCESSES

 A Business Process is an activity or set of activities that will accomplish a specific organizational
goal.
 Business Process Management (BPM) is a systematic approach to improving these processes.
Categories of Business Processes
I. Operational Processes (or Primary Processes)
 Operational or Primary Processes deal with the core business and value chain.
 These processes deliver value to the customer by helping to produce a product or service.
 Operational processes represent essential business activities that accomplish business
objectives, eg. generating revenue - Order to Cash cycle, procurement - Purchase to Pay cycle.
Order to Cash Cycle(Example)
Order to Cash (OTC or O2C) is a set of business processes that involves receiving and fulfilling
customer requests for goods or services.
 Customer Order: Customer order received is documented.

 Order Fulfillment: Order is fulfilled or service is scheduled.
 Delivery Note: Order is shipped to customer or service is performed with delivery note.
 Invoicing: Invoice is created and sent to customer.
 Collections: Customer sends payment /collection.
 Accounting: Collection is recorded in general ledger.
II. Supporting Processes (or Secondary Processes)
 Supporting Processes support core processes and functions within an

organization. Examples of supporting or management processes include
Accounting, Human Resource (HR) Management and workplace safety.
 One key differentiator between operational and support processes is that support processes do
not provide value to customers directly.
Human Resource Management (Example)
The main HR Process Areas are grouped into logical functional areas and they are as follows:
 Recruitmen t a nd Sta ffing

 G oa l S etti n g
 Training and Development
 C ompen s a ti on a n d B en ef i ts
 Performance Management
 Career Development
 Leadership Development
III. Management Processes
 Management processes measure, monitor and control activities related to business

procedures and systems. Examples of management processes include internal
communications, governance, strategic planning, budgeting, and infrastructure or capacity
management.
 Like supporting processes, management processes do not provide value directly to the
customers.
Budgeting (Example)
In any enterprise, budgeting needs to be driven by the vision (what enterprise plans to accomplish)
and the strategic plan (the steps to get there). Having a formal and structured budgeting process is
the foundation for good business management, growth and development.
AUTOMATED BUSINESS PROCESSES

 Business Process Automation (BPA) is the technology-enabled
automation of activities or services that accomplish a specific
function and can be implemented for many different functions of
company activities.
 BPA is the tactic a business uses to automate processes to operate efficiently and effectively.
 It consists of integrating applications and using software applications throughout the
organization.
Objectives of BPA
 Confidentiality: To ensure that data is only available to persons who have right to see the
same;
 Integrity: To ensure that no un-authorized amendments can be made in the data;
 Availability: To ensure that data is available when asked for; and

 Timeliness: To ensure that data is made available in at the right time.
Benefits of Automating Business Process
 Quality & Consistency : Ensures that every action is performed identically - resulting in high
quality, reliable results and stakeholders will consistently experience the same level of service.
 Time Saving: Automation reduces the number of tasks employees would otherwise need to do
manually. It frees up time to work on items that add genuine value to the business increasing
employees' levels of motivation.

 Visibility: Automated processes are controlled and consistently operate accurately within the
defined timeline. It gives visibility of the process status to the organisation.
 Improved Operational Efficiency: Automation reduces the time it takes to achieve a task, the
effort required to undertake it and the cost of completing it successfully. This way system runs
smoothly and efficiently.
 Governance & Reliability: The consistency of automated processes means stakeholders can rely
on business processes to operate and offer reliable processes to customers, maintaining a competitive
advantage.
 Reduced Turnaround Times: Eliminate unnecessary tasks and realign process steps to optimise the
flow of information which reduces the turnaround times for both staff and external customers.
 Reduced Costs: Automation allows you us accomplish more by utilising fewer resources.
Implementation of BPA
(i) Step 1: Define why we plan to implement a BPA?
The primary purpose for which an enterprise implements automation
may vary from enterprise to enterprise. A list of generic reasons for
going for BPA may include any or combination of the following:
 Errors in manual processes leading to higher costs.
 Payment processes not streamlined, due to duplicate or late payments, missing early pay
discounts, and losing revenue.
 Paying for goods and services not received .
 Poor debtor management leading to high invoice aging and poor cash flow.
 Not being able to find documents quickly during an audit or lawsuit or not being able to
find all documents.
 Lengthy or incomplete new employee .
 Unable to recruit and train new employees, but where employees are urgently required.
 Lack of management understanding of business processes.
 Poor customer service.
(ii) Step 2: Undertstand the rules/ regulations under which the enterprise needs to comply
with?
 One of the most important steps in automating any business process is to understand the
rules of engagement, which include following the rules, adhering to regulations and
following document retention requirements.
 It is important to understand that laws may require documents to be retained for
specified number of years and in a specified format.
(iii) Step 3: Document the process, we wish to automate
At this step, all the documents that are currently being used need to be documented.
The aspects the need to be kept in mid are: Wh a t d ocu men ts n e ed to be ca ptu r ed , W h e r e
d o t h e y c o m e f r o m , What format are they in: Paper, FAX, email, PDF etc.?
The benefit of the above process for user and entity being:

 It provides clarity on the process.
 It helps to determine the sources of inefficiency, bottlenecks, and problems.
 It allows desired result with workflow automation.
No automation shall benefit the entity, if the process being automated is error-prone. Hence the
automation is needed to be error free.
(iv) Step 4: Define the objectives/goals to be achieved by implementing BPA
Once the above steps have been completed, entity needs to determine the key objectives of
the process improvement activities. When determining goals, remember that goals need to be
SMART:
 Specific : Clearly defined ,

 Measurable: Easily quantifiable in monetary terms,
 Attainable: Achievable through best efforts,
 Relevant: Entity must be in need of these, and
 Timely: Achieved within a given time frame.
(v) Step 5: Engage the business process consultant
To decide as to which company/ consultant to partner with, depends upon the following:
 Objectivity of consultant in understanding/evaluating entity situation.
 Is the consultant experienced in resolving critical business issues?
 Whether the consultant is capable of recommending and implementing a

combination of hardware, software and services as appropriate to meeting enterprise
BPA requirements?
 Does the consultant have the required expertise to clearly articulate the business
value of every aspect of the proposed solution?
(vi) Step 6: Calculate the RoI for project

 The right stakeholders need to be engaged and involved to ensure that the benefits of
BPA are clearly communicated and implementation becomes successful.
 Hence, the required business process owners have to be convinced so as to justify the
benefits of BPA and get approval from senior management.
 The best way to convince would be to generate a proposition that communicates to the
stakeholders that BPA shall lead to not only cost savings for the enterprise but also
improves efficiency and effectiveness of service offerings.
Some of the methods for justification of a BPA proposal may include:
 Cost Savings, being clearly computed and demonstrated.
 How BPA could lead to reduction in required manpower.
 Savings in employee salary by not having to replace those.

 Eliminating fines to be paid by entity due to delays being avoided.
 Reducing the cost of audits and lawsuits.

 Taking advantage of early payment discounts and eliminating duplicate payments.
 Ensuring complete documentation for all new accounts.
 New rev en u e g en era ti on op por tu n i ti es .
 Collecting accounts receivable faster and improving cash flow.

 Charging for instant access to records
The above can be very well presented to justify the proposal and convince management to go ahead
with the project of BPA implementation as required for the enterprise.
(vii) Step 7: Developing the BPA
 Once the requirements have been document, ROl has been computed and top
management approval to go ahead has been received, the consultant develops the requisite
BPA.
 The developed BPA needs to meet the objectives for which the same is being developed.
(viii) Step 8: Testing the BPA
 Once developed, it is important to test the new process to determine how well it
works and identify where additional "exception processing" steps need to be
included.
 The process of testing is an iterative process.
 Testing allows room for improvements prior to the official launch of the new
process.
 Documenting the final version of the process will help to capture all of this hard work,
thinking and experience which can be used to train new people.

ENTERPRISE RISK MANAGEMENT

 Enterprise Risk Management (ERM) may be defined as a process, effected by
an entity's Board of Directors, management and other personnel,
 applied in strategy setting and across the enterprise,
 designed to identify potential events that may affect the entity, and
 manage risk to be within its risk appetite,
to provide reasonable assurance regarding the achievement of entity objectives.
 The underlying premise of Enterprise Risk Management (ERM) is that every entity, whether
for profit, not-for-profit, or a governmental body, exists to provide value for its
stakeholders.
 All entities face uncertainty, and the challenge for management is to determine how much
uncertainty the entity is prepared to accept as it strives to grow stakeholder value.
 ERM provides a framework for management to effectively deal with uncertainty and
associated risk and opportunity and thereby enhance its capacity to build value.
Benefits of Enterprise Risk Management
 Align risk appetite and strategy: Risk appetite is the degree of risk, on a broad-based level that
an enterprise (any type of entity) is willing to accept in pursuit of its goals. Management
considers the entity's risk appetite first in evaluating strategic alternatives.
 Link growth, risk and return: ERM provides an enhanced ability to identify and assess risks,
and establish acceptable levels of risk relative to growth and return objectives.
 Enhance risk response decisions: ERM provides the rigor to identify and select among
alternative risk responses - risk avoidance, reduction, sharing and acceptance. ERM provides
methodologies and techniques for making these decisions.
 Minimize operational surprises and losses: Entities have enhanced capability to identify potential
events, assess risk and establish responses, thereby reducing the occurrence of surprises and
related costs or losses.
 Identify and manage cross-enterprise risks: Management needs to not only manage individual
risks, but also understand interrelated impacts.
 Provide integrated responses to multiple risks: Business processes carry many inherent risks,
and ERM enables integrated solutions for managing the risks.
 Seize opportunities: Management considers potential events, rather than just risks, and by
considering a full range of events, management gains an understanding of how certain
events represent opportunities.
 Rationalize capital: More robust information on an entity's total risk allows management to more
effectively assess overall capital needs and improve capital allocation.
Components of Enterprise Risk Management

(i) Internal Environment: The internal environment encompasses the tone of an organization, and
sets the basis for how risk is viewed and addressed by an entity's people, including risk

management philosophy and risk appetite, integrity and ethical values, and the environment in which
they operate.
(ii) Objective Setting: ERM ensures that management has a process in place to set objectives and
that the chosen objectives support and align with the entity's mission/vision and are consistent with
the entity's risk appetite.
(iii) Event Identification: Event identification includes identifying factors— internal and external
—that influence how potential events may affect strategy implementation and achievement of
objectives.
(iv) Risk Assessment: Risks are assessed on both an inherent and a residual basis, and the
assessment considers both risk likelihood and impact.
(v) Risk Response: Personnel identify and evaluate possible responses to risks, including avoiding,
accepting, reducing and sharing risk.
(vi) Control Activities: Policies and procedures are established and executed to help ensure that the
risk responses management selected, are effectively carried out.
(vii) Information and Communication: Relevant information is identified, captured and communicated
in a form and time frame that enable people to carry out their responsibilities. Effective communication
also should occur in a broader sense, flowing down, across and up the entity.
(viii) Monitoring: The entire ERM process should be monitored, and modifications made as
necessary. In this way, the system can react dynamically, changing as conditions warrant.
RISKS
 Risk is any event that may result in a significant deviation from a planned objective
resulting in an unwanted negative consequence.
 The degree of risk associated with an event is determined by the likelihood (uncertainty,
probability) of the event occurring, the consequences (impact) if the event were to occur
and it's timing.
Risks of Business Process Automation
 Input & Access: All input transaction data may not be accurate, complete and authorized.
 File & Data Transmission: All files and data transmitted may not be processed accurately
and completely, due to network error.
 Processing: Valid input data may not have been processed accurately and completely
due to program error or bugs.
 Output: Is not complete and accurate due to program error or bugs and is distributed
to unauthorized personnel due to weak access control.
 Data: Master data and transaction data may be changed by unauthorized personnel
due to weak access control.
 Infrastructure: All data & programs could be lost if there is no proper backup in the
event of a disaster and the business could come to a standstill.

Types of Business Risks
 S t r a t e g i c : Risk that would prevent an organization from accomplishing its

objectives.
 F i n a n c i a l : Risk that could result in a negative financial impact to the organization.
 Regulatory (Compliance): Risk that could expose the organization to fines and
penalties from a regulatory agency due to non-compliance with laws and regulations.
 Reputational : Risk that could expose the organization to negative publicity.

 O pe rat i on a l : Risk that could prevent the organization from operating in the most
effective and efficient manner or be disruptive to other operations.
CONTROLS
Control is defined as policies, procedures, practices and organization structure that are
designed to provide reasonable assurance that business objectives are achieved and undesired
events are prevented or detected and corrected.
SA-315 defines the system of internal control. The system of internal control is said to be well
designed and properly operated when:
 All transactions are executed in accordance with management's general or specific

authorization;
 All transactions are promptly recorded in the correct amount, in the appropriate accounts
and in the accounting period
 Assets are safeguarded from unauthorized access , use or disposition; and
 The recorded assets are compared with the existing assets at reasonable intervals and
appropriate action is taken to reconcile any differences.
Based on the mode of implementation, these controls can be manual, automated or semi -automated
(partially manual and partially automated).
 Manual Control
 Automated Control
 Semi-Automated Control
Internal Control
 Internal Controls are a system consisting of specific policies and procedures designed to
provide management with reasonable assurance that the goals and objectives it believes
important to the entity will be met.
 Internal Control System means all the policies and procedures adopted by the
management of an entity to assist in achieving management's objective.
An Internal Control System:

 Facilitates the effectiveness and efficiency of operations.
 Helps ensure the reliability of internal and external financial reporting.

 Assists compliance with applicable laws and regulations.
 Helps safeguarding the assets of the entity.

Effective Internal Control
 An entity's system of internal control contains manual elements and often contains automated
elements.
 The use of manual or automated elements in internal control also affects the manner in which
transactions are initiated, recorded, processed, and reported. Manual elements in internal control
may be more suitable where judgment and discretion are required such as for the following
circumstances:
 Large, unusual or non -recurring transactions.
 Circumstances where errors are difficult to define, anticipate or

predict.
 In changing circumstances that require a control response outside the scope

of an existing automated control.
 In monitoring the effectiveness of automated controls.
The extent and nature of the risks to internal control vary depending on the nature and characteristics
of the entity's information system. The entity responds to the risks arising from the use of IT or
from use of manual elements in internal control by establishing effective controls considering the
characteristics of the entity's information system.
Components of Internal Control

SA 315 explains the five components of any internal control as they relate to a financial statement
audit. The five components are as follows:
1) Control Environment
2) R i s k A s s e s s m e n t
3) C o n t r o l A c t i v i t i e s
4) I n f o r m a t i o n a n d C o m m u n i c a t i o n
5) M o n i t o r i n g o f C o n t r o l s
I. Control Environment
 The Control Environment is the set of standards, processes, and structures that provide
the basis for carrying out internal control across the organization.
 The board of directors and senior management establish the tone at the top regarding
the importance of internal control, including expected standards of conduct.
 Management reinforces expectations at the various levels of the organization.
 The control environment comprises the integrity and ethical values of the organization;
the parameters enabling the board of directors to carry out its governance
responsibilities; the organizational structure and assignment of authority and responsibility;
the process for attracting, developing, and retaining competent individuals; and the rigor

Strategic
Management
INDEX
Sr. Chapter Name Page
1. Introducion to Strategic Management 1.1
2. Dynamics of Competitive Strategy 2.1
3. Strategic Management Process 3.1
4. Corporate Level Strategies 4.1
5. Business Level Strategies 5.1
6. Functional Level Strategies 6.1
7. Organisation and Strategic Leadership 7.1
8. Strategy Implementation and Control 8.1
Vsmart Academy, Pune CA Inter – Strategic Management
1. INTRODUCTION TO STRATEGIC MANAGEMENT

BUSINESS POLICY
 The origin of business policy can be traced back to 1911, when Harvard Business
School introduced an integrative course in management aimed at the creation of
general management capability among business executives.
 This course was based on interactive case studies which had been in use at the school for
instructional purposes since 1908.
 In 1969, the American Assembly of Collegiate Schools of Business, a regulatory body
for business schools, made the course of business policy, a mandatory requirement for the
purpose of recognition of business schools/management institutes.
 During the next few decades, business policy as a course spread to different management
institutes across different nations and became an integral part of management curriculum.
 Business policy, as defined by Christensen and others, is "the study of the functions and responsibilities of
senior management, the crucial problems that affect success in the total enterprise, and the decisions
that determine the direction of the organization and shape its future”.
CONCEPT OF MANAGEMENT
The term 'management' is used in two senses such as:
(a)It is used with reference to a key group in an organisation in-charge of its

affairs.
An organisation becomes a unified functioning system when management systematically mobilises and
utilises the diverse resources efficiently and effectively. The survival and success of an organisation depend
to a large extent on the competence and character of its management.
(b) The term 'Management' is also used with reference to a set of interrelated functions and
processes carried out by the management of an organisation to attain its objectives. These functions
include Planning, Organising, Directing, Staffing and Control.
CONCEPT OF STRATEGY
 Strategy seeks to relate the goals of the organization to the means of achieving them.
 Strategy is the game plan that the management of a business uses to take market position,
conduct its operations, attract and satisfy customers, compete successfully, and achieve
organizational objectives.
 The term strategy is associated with unified design and action for achieving major goals, gaining
command over the situation with a long-range perspective and securing a critically advantageous
position, its implications for corporate functioning are obvious.
 We may define the term 'strategy' as a long range blueprint of an organization's desired
image, direction and destination, i.e., what it wants to be, what it wants to do and where it wants
to go.
 Strategy can never be perfect, flawless and optimal.
Authored By : MBA Prakash Agrawal, Compiled By : CA Vijay Sarda Page 1.1

 In large organisations, strategies are formulated at the corporate, divisional and functional levels.
Strategy is partly proactive and partly reactive: A company's strategy is typically a blend of
(1) proactive actions on the part of managers to improve the company's market position and financial
performance and (2) reactions to unanticipated developments and fresh market conditions.
In other words, a company uses both proactive and reactive strategies to cope up the uncertain business
environment. Proactive strategy is planned strategy whereas reactive strategy is adaptive reaction to changing
circumstances.
STRATEGIC MANAGEMENT
 The term 'strategic management' refers to the managerial process of developing a strategic vision,
setting objectives, crafting a strategy, implementing and evaluating the strategy, and initiating
corrective adjustments where deemed appropriate.
 Strategic management emphasizes the monitoring and evaluation of external opportunities and
threats in the light of a company's strengths and weaknesses and designing strategies for the survival
and growth of the company.
Importance of Strategic Management
The major benefits of strategic management are:
 The strategic management gives a direction to the company to move ahead. It defines the goals and
mission. It helps management to define realistic objectives and goals which are in line with the vision of the
company.
 Strategic management helps organisations to be proactive instead of reactive in shaping its future.
Organisations are able to analyse and take actions instead of being mere spectators. Thereby they are able to
control their own destiny in a better manner.
 Strategic management provides framework for all major decisions of an enterprise such as
decisions on businesses, products, markets, manufacturing facilities, investments and organisational structure.
 Strategic management seeks to prepare the organisation to face the future and act as pathfinder to
various business opportunities. Organisations are able to identify the available opportunities and identify ways
and means as how to reach them.
 Strategic management serves as a corporate defence mechanism against mistakes and pitfalls. It
helps organisations to avoid costly mistakes in product market choices or investments.
 Strategic management helps to enhance the longevity of the business. With the state of
competition and dynamic environment it may not be possible for organizations to survive in long run.
 Strategic management helps the organization to develop certain core competencies and
competitive advantages that would facilitate assist in its fight for survival and growth.
Limitations of Strategic Management
 Environment is highly complex and turbulent. It is difficult to understand the complex

environment and exactly pinpoint how it will shape-up in future. The organisational estimate
about its future shape may awfully go wrong and jeopardise all strategic plans.

 Strategic management is a time-consuming process. Organisations spend a lot of time in preparing,

communicating the strategies that may impede daily operations and negatively impact the routine business.
 Strategic management is a costly process. Strategic management adds a lot of expenses to an

organization. Expert strategic planners need to be engaged, efforts are made for analysis of external and
internal environments devise strategies and properly implement.
 In a competitive scenario, where all organisations are trying to move strategically, it is difficult to clearly
estimate the competitive responses to a firm's strategies.
STRATEGIC LEVELS IN ORGANISATIONS

 There are three main levels of
management: corporate, business, and
functional.
 General Managers are found at the first
two of these levels, but their strategic
roles differ depending on their sphere of
responsibility.
Corporate Level:
 The corporate level of management
consists of the Chief Executive Officer
(CEO), other senior executives, the board of directors, and corporate staff.
 These individuals participate in strategic decision making within the organization.
 The role of corporate-level managers is to oversee the development of strategies for the whole
organization. This role includes defining the mission and goals of the organization, determining what
businesses it should be in, allocating resources among the different businesses, formulating and
implementing strategies that span individual businesses, and providing leadership for the organization.
 Besides overseeing resource allocation and managing the divestment and acquisition processes,
corporate-level managers provide a link between the people who oversee the strategic development
of a firm and those who own it (the shareholders).
 Corporate-level managers, and particularly the CEO, can be viewed as the guardians of shareholder
welfare. It is their responsibility to ensure that the corporate and business strategies that the
company pursues are consistent with maximizing shareholder wealth. If they are not, then ultimately
the CEO is likely to be called to account by the shareholders.
Business Level:
 It is not their specific responsibility of people in corporate level to
develop strategies for competing in the individual business areas, such as financial services. The
development of such strategies is the responsibility of those in charge of different businesses
called business level managers.
 A strategic business unit is a self-contained division (with its own functions-for example, finance,
purchasing, production, and marketing departments) that provides a product or service for a
particular market.
 The principal general manager at the business level, or the business-level manager, is the head
of the division.

 The strategic role of these managers is to translate the general statements of direction and
intent that come from the corporate level into concrete strategies for individual businesses.
 Thus, whereas corporate-level managers are concerned with strategies that span individual businesses,
business-level managers are concerned with strategies that are specific to a particular business.
Function Level:
 Functional-level managers are responsible for the specific business functions or operations
(human resources, purchasing, product development, customer service, and so on) that constitute a
company or one of its divisions.
 Thus, a functional manager's sphere of responsibility is generally confined to one organizational
activity, whereas general managers oversee the operation of a whole company or division.
 Although they are not responsible for the overall performance of the organization, functional
managers nevertheless have a major strategic role: to develop functional strategies in their area that
help fulfil the strategic objectives set by business- and corporate-level general managers.
 Functional managers provide most of the information that makes it possible for business- and
corporate-level general managers to formulate realistic and attainable strategies.
 Indeed, because they are closer to the customer than the typical general manager is, functional
managers themselves may generate important ideas that subsequently may become major strategies
for the company. Thus, it is important for general managers to listen closely to the ideas of their functional
managers.
STRATEGIC MANAGEMENT IN GOVERNMENT AND NOT-FOR-PROFIT

ORGANISATIONS
Educational institutions:
 Educational institutions are using strategic- management techniques and

concepts more frequently.
 The significant change in the competitive climate has taken place in the educational
environment. Hence, they are adopting different strategies for attracting best students.
 The academic institutions have also joined hands with industries in order to deliver education to
make graduates more employable.
 The educational delivery system has also undergone considerable changes with the introduction of
computers and internet technologies.
 The first all-Internet law school, Concord University School of Law, boasts nearly two hundred students
who can access lectures anytime and chat at fixed times with professors.
 Online college degrees are becoming common and represent a threat to traditional Colleges and
universities.
Medical organizations:
 Modern hospitals are creating new strategies today as advances in the diagnosis and
treatment of chronic diseases are undercutting that earlier mission.
 Hospitals are beginning to bring services to the patient as much as bringing the patient to
the hospital.
 Pathological laboratories have started collecting door-to-door samples.

 Chronic care will require day-treatment facilities, electronic monitoring at home, user-friendly
ambulatory services, decentralized service networks, and laboratory testing.
 A successful hospital strategy for the future will require collaboration with physicians and a reallocation
of resources from acute to chronic care in home.
 Backward integration strategies that some hospitals are pursuing include acquiring ambulance
services, waste disposal services, and diagnostic services.
 Millions of persons research medical ailments online, which is causing a dramatic shift in the balance of
power between doctor, patient, and hospitals.
 The whole strategic landscape of healthcare is changing because of the Internet. Intel recently began
offering a new secure medical service whereby doctors and patients can conduct sensitive business
on the Internet, such as sharing results of medical tests and prescribing medicine.
 The ten most successful hospital strategies today are providing free-standing outpatient surgery centres,
outpatient surgery and diagnostic centres, physical rehabilitation centres, home health services,
cardiac rehabilitation centres, preferred provider services, industrial medicine services, women's
medicine services, skilled nursing units, and psychiatric services.
Governmental agencies and departments:
 Central, state, municipal agencies, Public Sector Units, departments are

responsible for formulating, implementing, and evaluating strategies that
use taxpayers' money in the most cost-effective way to provide services and
programs.
 Strategists in governmental organizations operate with less strategic autonomy than their
counterparts in private firms.
 Governmental strategists usually enjoy little freedom in altering the organizations' missions or redirecting
objectives.
 Legislators and politicians often have direct or indirect control over major decisions and resources.
 Strategic issues get discussed and debated in the media and legislatures. Issues become politicized,
resulting in fewer strategic choice alternatives.
 But in government agencies and departments are finding that their employees get excited about the
opportunity to participate in the strategic-management process and thereby have an effect on the
organization's mission, objectives, strategies, and policies.
 In addition, government agencies are using a strategic management approach to develop and
substantiate formal requests for additional funding.

2. DYNAMICS OF COMPETETIVE STRATREGY

Competetive Strategy
A firm must identify its position relative to the competitors in the market. The objective of a competitive
strategy is to generate competitive advantage, increase market share and beat competition. Competitive
advantage comes from a firm's ability to perform activities more effectively than its rivals. A competitive
strategy consists of moves to:
 Attract customers.
 Withstand competitive pressures.
 Strengthen market position.
Competitive Landscape
 Competitive landscape is about identifying and understanding the competitors and at the same time, it
permits the comprehension of their vision, mission, core values, niche market, strengths and weaknesses.
 Understanding of competitive landscape requires an application of "competitive intelligence".
 An in-depth investigation and analysis of a firm's competition allows it to assess the competitor's
strengths and weaknesses in the marketplace and helps it to choose and implement effective strategies that
will improve its competitive advantage.
Steps to understand the Competitive Landscape
i. Identify the competitor: The first step to understand the competitive landscape is to identify the
competitors in the firm's industry and have actual data about their respective market share.
ii. Understand the competitors: Once the competitors have been identified, the strategist can use market
research report, internet, newspapers, social media, industry reports, and various other sources to
understand the products and services offered by them in different markets.
This answers the question:
 What are their product and services?
iii. Determine the strengths of the competitors: What are the strength of the competitors? What do
they do well? Do they offer great products? Why do customers give them their business?
This answers the questions:
 What are their financial positions?
 What gives them cost and price advantage?
 How strong is their distribution network?
 What are their human resource strengths?
iv. Determine the weaknesses of the competitors: Weaknesses (and strengths) can be identified by going
through consumer reports and reviews appearing in various media.
This answers the question
 Where are they lacking?

v. Put all of the information together: At this stage, the strategist should put together all information
about competitors and draw inference about what they are not offering and what the firm can do to fill
in the gaps.
This answers the questions:
 What will the business do with this information?
 What improvements does the firm need to make?
 How can the firm exploit the weaknesses of competitors?
Strategic Analysis
 Judgments about what strategies to pursue need to flow directly from analysis of a firm's external
environment and its internal resources and capabilities. Two most important situational considerations are:
(1) industry and competitive conditions, and

(2) an organisation's own competitive capabilities, resources, internal strengths, weaknesses, and
market position.
 The analytical sequence is from strategic appraisal of the external and internal situation, to evaluation of
alternatives, to choice of strategy.
Issues to consider for Strategic Analysis
Strategy evolves over a period of time:
 An important aspect of strategic analyses is to consider the possible implications of routine decisions.
 Strategy of a firm, at a particular point of time, is result of a series of small decisions taken over an
extended period of time.
Balance of external and internal factors:

 The process of strategy formulation is often described as one of the matching the internal potential of
the organization with the environmental opportunities.
 A manager working on a strategic decision has to balance opportunities, influences and constraints.
 These constraining forces will be producing an impact that will vary in nature, degree, magnitude and
importance.
 Some of these factors can be managed to an extent, however, there will be several others that are beyond
the control of a manager.
Risk:
 The complexity and intermingling of variables in the environment reduces the strategic balance
in the organisation.
 Competitive markets, liberalization, globalization, booms, recessions, technological advancements,
inter-country relationships all affect businesses and pose risk at varying degrees.
 An important aspect of strategic analysis is to identify potential imbalances or risks and assess
their consequences. A broad classification of the strategic risk that requires consideration in
strategic analysis is given below:
 External risk is on account of inconsistencies between strategies and the forces in the
environment.
 Internal risk occurs on account of forces that are either within the organization or are
directly interacting with the organization on a routine basis .
Methods of Industry and Competitive Analysis

 Industry and competitive analysis aims at developing insight in several issues.
 Analysing these issues build understanding of a firm's surrounding environment and,
collectively, form the basis for matching its strategy to changing industry conditions and
competitive realities. The issues are discussed below:
Dominant Economic Features of the Industry
Industry is "a group of firms whose products have same and similar attributes
such that they compete for the same buyers."
The factors to be considered in profiling an industry's economic features are fairly standard and
are given as follows:
 Size and nature of market.
 Scope of competitive rivalry (local, regional, national, international, or global).
 Market growth rate and position in the business life (early development, rapid growth and
takeoff, early maturity, saturation and stagnation, decline).
 Number of rivals and their relative market share.
 The number of buyers and their relative sizes. Whether and to what extent industry rivals
have integrated backward and/or forward.
 The types of distribution channels used to access consumers.
 The pace of technological change in both production process innovation and new product
introductions.
 Whether the products and services of rival firms are highly differentiated, weakly
differentiated, or essentially identical?
 Whether organisation can realize economies of scale in purchasing, manufacturing, transportation,

marketing, or advertising?
 Whether key industry participants are clustered in a particular location ?
 Capital requirements and the ease of entry and exit.
 Whether industry profitability is above/below par?
Nature and Strength of Competition
 An important component of industry and competitive analysis involves delving into the
industry's competitive process to discover what the main sources of competitive pressure are
and how strong each competitive force is.
 Porter's five forces model is useful in understanding the competition.
 It is a powerful tool for systematically diagnosing the main competitive pressures in a
market and assessing how strong and important each one is.

Triggers of Change
 All industries are characterized by trends and new developments that gradually produce
changes important enough to require a strategic response from participating firms.
Driving forces:
 Industry and competitive conditions change because forces are in motion that creates
incentives or pressures for changes.
 The most dominant forces are called driving forces because they have the biggest influence
on what kinds of changes will take place in the industry's structure and competitive
environment.
 Analyzing driving forces has two steps: identifying what the driving forces are and
assessing the impact they will have on the industry.
Most common driving forces:
 The internet and e-commerce opportunities and threats it breeds in the industry.
 Increasing globalization.
 Changes in the long -term industry g rowth rate.
 Product innovation.
 Marketing innovation.
 E n t r y o r e x i t o f ma j o r f i r m s .
 Diffusion of technical know-how across more companies and more countries.
 C h a n g e s i n c o s t a n d e f f i ci e n cy .
Identifying the Strongest/Weakest Companies (Strategic Group Mapping)
 The next step in examining the industry's competitive structure is to study the market positions
of rival companies.
 One technique for revealing the competitive positions of industry participants is strategic
group mapping, which is useful analytical tool for comparing the market positions of each firm
separately or for grouping them into like positions when an industry has so many competitors that
it is not practical to examine each one in-depth.
 A strategic group consists of those rival firms which have similar competitive approaches and positions
in the market.
 Companies in the same strategic group can resemble one another in any of the several ways: they
may have comparable product-line breadth, sell in the same price/quality range, emphasize the
same distribution channels, use essentially the same product attributes to appeal to similar
types of buyers, depend on identical technological approaches, or offer buyers similar services
and technical assistance.
 An industry contains only one strategic group when all sellers pursue essentially identical
strategies and have comparable market positions.

 At the other extreme, there are as many strategic groups as there are competitors when each
rival pursues a distinctively different competitive approach and occupies a substantially diff erent
competitive position in the marketplace.
The procedure for constructing a strategic group map and deciding which firms belong in which
strategic group is straightforward:
 Identify the competitive characteristics that differentiate firms in the industry typical variables are
price/quality range (high, medium, low); geographic coverage (local, regional, national, global); degree of vertical
integration (none, partial, full); product-line breadth (wide, narrow); use of distribution channels (one, some, all);
and degree of service offered (no-frills, limited, full).
 Plot the firms on a two-variable map using pairs of these differentiating characteristics.
 Assign firms that fall in about the same strategy space to the same strategic group.
 Draw circles around each strategic group making the circles proportional to the size of the group's
respective share of total industry sales revenues.
Likely Strategic Moves of Rivals
 A company can't expect to outmanoeuvre its rivals without monitoring their actions, understanding their
strategies, and anticipating what moves they are likely to make next.
 Competitive intelligence about the strategies rivals are deploying, their latest moves, their resource
strengths and weaknesses, and the plans they have announced is essential to anticipating the actions they are
likely to take next.
 Competitive intelligence can help a company determine whether it needs to defend against specific moves
taken by rivals or whether those moves provide an opening for a new offensive thrust.
Key Factors for Competitive Success
 An industry's Key Success Factors (KSFs) are those things that most affect industry members' ability
to prosper in the marketplace - the particular strategy elements, product attributes, resources,
competencies, competitive capabilities, and business outcomes that spell the difference between profit and
loss and, ultimately, between competitive success or failure.
 They are the prerequisites for industry success or, to put it another way, KSFs are the rules that shape
whether a company will be financially and competitively successful.
 The answers to three questions help identify an industry's key success factors:
 On what basis do customers choose between the competing brands of sellers? What product
attributes are crucial?
 What resources and competitive capabilities does a seller need to have to be competitively
successful?
 What does it take for sellers to achieve a sustainable competitive advantage?
 For example, in apparel manufacturing, the KSFs are appealing designs and colour combinations (to create
buyer interest) and low-cost manufacturing efficiency (to permit attractive retail pricing and ample profit
margins).

 Misdiagnosing the industry factors critical to long-term competitive success greatly raises the risk of a
misdirected strategy.
 In contrast, an organisation with perceptive understanding of industry KSFs can gain sustainable
competitive advantage.
 Indeed, business organisations that stand out on a particular KSF enjoy a stronger market position for their,
efforts-being distinctively better than rivals on one or more key success factors.
 Key success factors vary from industry to industry and even from time to time within the same industry
as driving forces and competitive conditions change.
Prospects and Financial Attractiveness of Industry
 Company strategists are obligated to assess the industry outlook carefully, deciding
whether industry and competitive conditions present an attractive business opportunity
for the organisation or whether its growth and profit prospects are gloomy.
 The important factors on which to base such conclusions include:
 The industry's growth potential.

 Whether competition currently permits adequate profitability and whether competitive forces will
become stronger or weaker?
 Whether industry profitability will be favourably or unfavourably affected by the prevailing

driving forces?
 The competitive position of an organisation in the industry and whether its position is likely
to grow stronger or weaker.
 The potential to capitalize on the vulnerabilities of weaker rivals

 Whether the company is able to defend against or counteract the factors that make the
industry unattractive?
 The degrees of risk and uncertainty in the industry's future.

 The severity of problems confronting the industry as a whole.
 As a general proposition, if an industry's overall profit prospects are above average, the industry can
be considered attractive; if its profit prospects are below average, it is unattractive.
 An assessment that the industry is fundamentally attractive typically suggests that current industry
participants employ strategies calculated to strengthen their longterm competitive positions in the
business, expanding sales efforts and investing in additional facilities and equipment as needed.
 If the industry and competitive situation is judged relatively unattractive, more successful industry
participants may choose to invest cautiously, look for ways to protect their profitability, and perhaps
acquire smaller firms if the price is right; strong companies may consider diversification more attractive.
Core Competence
 Core competencies are capabilities that serve as a source of
competitive advantage for a firm over its rivals.

 Competency is defined as a combination of skills and techniques rather than individual skill or separate
technique.
 For core competencies, it is characteristic to have a combination of skills and techniques, which makes
the whole organization utilize these several separate individual capabilities.
 According to C.K. Prahalad and Gary Hamel, major core competencies are identified in three areas -
competitor differentiation, customer value, and application to other markets.
Competitor differentiation
 The company can consider having a core competence if the competence is unique and it is difficult for
competitors to imitate.
 It allows the company to provide better products or services to market with no fear that competitors can
copy it. The company has to keep on improving these skills in order to sustain its competitive position.
 Competence does not necessarily have to exist within one company in order to define as core
competence. Although all companies operating in the same market would have the equal skills and
resources, if one company can perform this significantly better; the company has obtained a core
competence.
Customer Value.
 When purchasing a product or service it has to deliver a fundamental benefit for the end customer
in order to be a core competence.
 It will include all the skills needed to provide fundamental benefits. The service or the product has to
have real impact on the customer as the reason to choose to purchase them.
 If customer has chosen the company without this impact, then competence is not a core competence and
it will not affect the company's market position.
Application of competencies to other markets.
 Core competence must be applicable to the whole organization; it cannot be
only one particular skill or specified area of expertise.
 Therefore, although some special capability would be essential or crucial for the success of
business activity, it will not be considered as core competence, if it is not fundamental from the
whole organization's point of view.
 If the three above-mentioned conditions are met, then the company can regard it competence as core
competency.
 Core competencies are often visible in the form of organizational functions. For example: Marketing and Sales
is a core competence of Hindustan Unilever Limited (HUL)
 A core competency for a firm is whatever it does best.
 Core competencies are the knowledge, skills, and facilities necessary to design and produce core
products. Core competencies are created by superior integration of technological, physical and human
resources. They represent distinctive skills as well as intangible, invisible, intellectual assets and cultural
capabilities.
 A Core competency fulfills three criteria:
i. It should provide potential access to a wide variety of markets.
ii. It should make a significant contribution to the perceived customer benefits of the end product.

iii. It should be difficult to imitate for competitors/rivals.
How to build Core Competencies (CC)?

There are two tools that help the firm to identify and build its core competencies.
Four specific criteria that firms can use to determine those capabilities that are core
competencies.
Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core competencies.
i. Valuable: Valuable capabilities are the ones that allow the firm to exploit opportunities or avert
the threats in its external environment. A firm created value for customers by effectively using
capabilities to exploit opportunities.
ii. Rare: Core competencies are very rare capabilities and very few of the competitors possess this.
Capabilities possessed by many rivals are unlikely to be sources of competitive advantage for any one of
them. Competitive advantage results only when firms develop and exploit valuable capabilities that differ
from those shared with competitors.
iii. Costly to imitate: Costly to imitate means such capabilities that competing firms are
unable to develop easily.
iv.Non-substitutable: Capabilities that do not have strategic equivalents are called non-substitutable
capabilities. The strategic value of capabilities increases as they become more difficult to substitute.
A. Value Chain Analysis
 Value chain analysis has been widely used as a means of describing the activities within and around an
organization, and relating them to an assessment of the competitive strength of an organization
 The two basic steps of identifying separate activities and assessing the value added from each were linked
to an analysis of an organization's competitive advantage by Michael Porter.
 One of the key aspects of value chain analysis is the recognition that organizations are much more than a
random collection of machines, material, money and people.
 These resources are of no value unless deployed into activities and organised into systems and routines
which ensure that products or services are produced which are valued by the final consumer/user.
 The primary activities of the organization are grouped into five main areas: inbound logistics, operations,
outbound logistics, marketing and sales, and service.
 Inbound logistics are the activities concerned with receiving, storing and distributing the
inputs to the product/service. This includes materials handling, stock control, transport etc.
 Operations transform these inputs into the final product or service: machining,
packaging, assembly, testing, etc.
 Outbound logistics collect, store and distribute the product to customers. For tangible products
this would be warehousing, materials handling, transport, etc.
Marketing and sales provide the means whereby consumers/users are made aware of the
product/service and are able to purchase it. This would include sales administration, advertising, selling and
so on.

Service are all those activities, which enhance or maintain the value of a product/ service, such as
installation, repair, training and spares.
Each of these groups of primary activities are linked to support activities. These can be divided into four
areas
 Procurement: This refers to the

processes for acquiring the various
resource inputs to the primary activities.
 Technology development: The key

technologies may be concerned directly
with the product (e.g. R&D product design)
or with processes (e.g. process development)
or with a particular resource (e.g. raw
materials improvements).
 Human resource management: It is

concerned with those activities involved in recruiting, managing, training, developing and rewarding people
within the organization.
 Infrastructure: The systems of planning, finance, quality control, information management, etc. are
crucially important to an organization's performance in its primary activities.
Use of value Chain Analysis for Identifying Core Competences:
 Value chain analysis is useful in describing the separate activities which are necessary to underpin an
organization's strategies.
 Value chain analysis is a reminder that the long-term competitive position of an organization is
concerned with its ability to sustain value for-money products or services, and it can be helpful in
identifying those activities which the organization must undertake at a threshold level of competence and
those which represent the core competences of the organization.
 However, in order to do this, it is necessary to identify the basis on which an organization has gained
competitive advantage and hence which are the core competences in sustaining this advantage.
 Different bases as to how organizational competences can be analysed and understood are given
below:
Managing linkages:
 Core competences in separate activities may provide competitive advantage for an organization, but
nevertheless over time may be imitated by competitors.
 Core competences are likely to be more robust and difficult to imitate if they relate to the
management of linkages within the organization's value chain and linkages into the supply and distribution chains.
 It is the management of these linkages which provides 'leverage' and levels of performance which are
difficult to match.
 Specialization of roles and responsibilities is common in most organizations and is one way in which high
levels of competence in separate activities is achieved.

 However, it often results in a set of activities which are incompatible - different departments pulling
in different directions - adding overall cost and/or diminishing value in the product or service.
 This management of internal linkages in the value chain could create competitive advantage in a number
of ways:
 There may be important linkages between the primary activities. For example, a decision to hold high
levels of finished stock might ease production scheduling problems and provide for a faster response time
to the customer. However, it will probably add to the overall cost of operations.
 It is easy to miss this issue of managing linkages between primary activities in an analysis if, for
example, the organization's competences in marketing activities and operations are assessed
separately.
 The management of the linkages between a primary activity and a support activity may be the
basis of a core competence. It may be key investments in systems or infrastructure which provides
the basis on which the company outperforms competitors. Computer-based systems have been
exploited in many different types of service organizations and have fundamentally transformed the
customer experience (Ola and Uber). Travel bookings and hotel reservation systems are examples which
other services would do well to emulate.
 Linkages between different support activities may also be the basis of core competences. For
example, the extent to which human resource development is in tune with new technologies has been
a key feature in the implementation of new production and office technologies.
 In addition to the management of internal linkage, competitive advantage may also be gained by the
ability to complement/co-ordinate the organization's own activities with those of suppliers, channels or
customers. Again, this could occur in a number of different ways:
 Vertical integration attempts to improve performance through ownership of more parts of the value
system, making more linkages internal to the organization.
 Within manufacturing industry the competence in closely specifying requirements and controlling
the performance of suppliers (sometimes linked to quality checking and/or penalties for poor
performance) can be critical to both quality enhancement and cost reduction.
 A more recent philosophy has been total quality management, which seeks to improve
performance through closer working relationships between the specialists within the value system.
For example, many manufacturers will now involve their suppliers and distributors at the design stage of
a product or project.
Competetive Advantage
 Competitive advantage allows a firm to gain an edge over rivals when competing. 'It is a set of
unique features of a company and its products that are perceived by the target market as significant and
superior to the competition.'
 Competitive advantage is the achieved advantage over rivals when a company's profitability is greater
than the average profitability of firms in its industry.
 It is achieved when the firm successfully formulates and implements the value creation strategy and
other firms are unable to duplicate it or find it too costly to imitate.

3. STRATEGIC MANAGEMENT PROCESS

STRATEGIC PLANNING
Planning:
 Planning involves determination of the course of action to attain the predetermined objectives.
 It bridges the gap between where we are to where we want to go. Thus, planning is future oriented
in nature.
 Planning can be strategic or operational.
 Strategic plans are made by the senior management for the entire organization after taking into
account the organization's strength and weaknesses in the light of opportunities and threats in the
external environment. They involve acquisition and allocation of resources for the attainment of
organisational objectives.
 But operational plans on the other hand are made at the middle and lower level management. They
specify details on how the resources are to be utilized efficiently for the attainment of objectives.
Strategic Planning:
 It is the process of determining the objectives of the firm, resources

required to attain these objectives and formulation of policies to govern
the acquisition, use and disposition of resources.
 Strategic planning involves decisions leading to the development of an effective strategy for the
firm.
 Strategic planning determines where an organization is going over the next year or more and the
ways for going there.
 The process is organization-wide, or focused on a major function such as a division or other major
function.
Dealing with uncertainty:
 A typical external analysis will emerge with dozens of strategic uncertainties.

 To be manageable, they need to be grouped into logical clusters.
 It is then useful to assess the importance of each cluster in order to set priorities with respect
to Information gathering and analysis.
 Sometimes, strategic uncertainty is represented by a future trend or event that has inherent
unpredictability.
 Information gathering and additional analysis will not be able to reduce the uncertainty. In that case,
scenario analysis can be employed.
 Scenario analysis basically accepts the uncertainty as given and uses it to drive a description of two or
more future scenarios.
 Strategies are then developed for each.

Impact of uncertainty:
 Each element of strategic uncertainty involves potential trends or events that could have an
impact on present, proposed, and even potential businesses.
 The impact of a strategic uncertainty will depend on the importance of the impacted SBU to a firm.
 Some SBUs are more important than others. The importance of established SBUs may
be indicated by their associated sales, profits, or costs.
STRATEGIC DECISION MAKING
 Decision making is a managerial process of selecting the best course of action out
of several alternative courses for the purpose of accomplishment of the organizational goals.
 Decisions may be operational, i.e., which relate to general day-to-day operations. They may also be
strategic in nature.
 According to Jauch and Glueck "Strategic decisions encompass the definition of the business, products
to be handled, markets to be served, functions to be performed and major policies needed for
the organisation to execute these decisions to achieve the strategic objectives."
Major Dimensions of Strategic Decisions

 Strategic decisions require top-management involvement : Strategic decisions involve thinking in totality
of the organization. Hence, problems calling for strategic decisions require to be considered by the top
management.
 Strategic decisions involve commitment of organisational resources: For example, Strategic

decisions to launch a new project by a firm requires allocation of huge funds and assignment of a large
number of employees.
 Strategic decisions necessitate consideration of factors in the firm's external environment: Strategic
focus in organization involves orienting its internal environment to the changes of external environment.
 Strategic decisions are likely to have a significant impact on the long-term prosperity of the firm:
Generally, the results of strategic implementation are seen on a long-term basis and not immediately.
 Strategic decisions are future oriented: Strategic thinking involves predicting the future environmental
conditions and how to orient for the changed conditions.
 Strategic decisions usually have major multifunctional or multi-business consequences: As they

involve organization in totality they affect different sections of the organization with varying degree.
Strategic Intent
 Strategic Management is defined as a dynamic process of formulation, implementation, evaluation, and
control of strategies to realise the organization's strategic intent.
 Strategic intent refers to purposes of what the organization strives for. Senior managers must define
"what they want to do" and "why they want to do".
 "Why they want to do" represents strategic intent of the firm.
 It implies the purposes, which an organization endeavours to achieving.

 It is a statement that provides a perspective of the means, which will lead the organization, reach
its vision in the long run.
 Strategic intent gives an idea of what the organization desires to attain in future.
 Strategic intent provides the framework within which the firm would operate to achieve
strategic objectives.
 Strategic intent could be in the form of vision and mission statements for the organisation at the corporate
level.
 It could be expressed as the business definition and business model at the business level of the
organisation.
 Strategic intent is generally stated in broad terms but when stated in precise terms it is an expression of
aims to be achieved operationally, i.e., goals and objectives.
Elements of Strategic Intent

1. Vision: Vision implies the blueprint of the company's future position. It
describes where the organisation wants to land. It depicts the organisation's
aspirations and provides a glimps of what the organization would like to become
in future. Every sub system of the organization is required to follow its vision.
2. Mission: Mission delineates the firm's business, its goals and ways to
reach the goals. It explains the reason for the existence of the firm in the
society. It is designed to help potential shareholders and investors understand the purpose of the company. It
defines the present capabilities, activities, customer focus and role in society.
3. Business Definition: It seeks to explain the business undertaken by the firm, with respect to the
customer needs, target markets, and alternative technologies. With the help of business definition, one can
ascertain the strategic business choices. Organisational restructuring also depends upon the business
definition.
4. Business Model: Business model, as the name implies is a strategy for the effective operation of
the business, ascertaining sources of income, desired customer base, and financial details. Rival firms,
operating in the same industry rely on the different business model due to their strategic choice.
5.Goals and Objectives: Goals are the end results, that the organization attempts to achieve. On the other
hand, objectives are time-based measurable targets, which help in the accomplishment of goals. These are
the end results which are to be attained with the help of an overall plan, over the particular period. However, in
practice, no distinction is made between goals and objectives and both the terms are used interchangeably.
The vision, mission, business definition, and business model explain the philosophy of the organisation but
the goals and objectives represent the results to be achieved in multiple areas of business.

Vision, Mission and Objectives
Vision
Strategic vision is a road map of a company's future —

 providing specifics about technology and customer focus,
 the geographic and product markets to be pursued,
 the capabilities it plans to develop, and the kind of company that management is trying to
create.
The three elements of a strategic vision are:

1. Coming up with a mission statement that defines what business the company is presently in and conveys
the essence of "Who we are and where we are now?"
2. Using the mission statement as basis for deciding on a long-term course making choices about "Where we
are going?"
3. Communicating the strategic vision in clear, exciting terms that would arouse organization wide
commitment.
Some examples of Vision are:
ICAI: World's becomes leading accounting body, a regulator and developer of trusted and
independent professionals with world class competencies in accounting, assurance, taxation, finance
and business advisory services.
Tesla : To create the most compelling car company of the 21st century by driving the world’s
transition to electric vehicles.
Google : To provide access to the world’s information in one click.
Essentials of a strategic vision
 The entrepreneurial challenge in developing a strategic vision is to think creatively about how to prepare a
company for the future.
 Forming a strategic vision is an exercise in intelligent entrepreneurship.
 A well-articulated strategic vision creates enthusiasm among the members of the organisation.
 The best-worded vision statement clearly illuminates the direction in which organization is headed.
Mission
A company's mission statement is typically focused on its present business scope —
1) "who we are and what we do".

2) Mission statements broadly describe an organizations present capabilities, customer focus,
activities, and business makeup.
 Mission statement should reflect the philosophy of the organizations that is perceived by the senior
managers.
 A good mission statement should be precise, clear, feasible, distinctive and motivating.

Following points are useful while writing a mission of a company:

 One of the roles of a mission statement is to give the organization its own special identity,
business emphasis and path for development — one that typically sets it apart from other similarly
positioned companies.
 A company's business is defined by what needs it is trying to satisfy, which customer groups it is
targeting and the technologies and competencies it uses and the activities it performs.
 Good mission statements are unique to the organization for which they are developed.
Some examples of Mission are:
ICAI: ICAI will leverage technology and infrastructure and partner with its stakeholders
 to Impart world class education, training and professional development opportunities to

create global professionals
 Develop an independent and transparent regulatory mechanism that keeps pace with the
changing times
 Ensure adherence to highest ethical standards.

 Conduct cutting edge research and development in the areas of accounting,
assurance, taxation, finance and business advisory services
 Establish ICAI members and firms as Indian multi-national service providers.
Tesla : To accelerate the world’s transition to sustainable transport.
Google: To organize the world’s information and make it universally accessible and useful.
What is our mission? And what business are we in ?
 The corporate mission is an expression of the growth ambition of the firm.

 It provides a dramatic picture of what the company wants to become. In other words, the
mission is a grand design of the firm's future.
 The mission serves as a justification for the firm's very presence and existence; it legitimises the
firm's presence.
 Mission is also an expression of the vision of the corporation, its founder/ leader.
 To make the vision come alive and become relevant, it needs to be spelt out. It is through the
mission that the firm spells out its vision.
 It represents the common purpose, which the entire firm shares and pursues.
 A mission is not a confidential affair to be confined at the top; it has to be open to the entire company.
All people are supposed to draw meaning and direction from it.
 It adds zeal to the firm and its people.
 A mission is not a fad-it is a tool to build and sustain commitment of the people to the corporation's policies.
 A mission is not rhetoric - it is the corporation's guiding principle.
 The mission serves as a proclamation to insiders and outsiders on what the corporation stands for.

 A mission, however, is not a PR document; while it legitimises the corporation's existence and role in
society, its main purpose is to give internal direction for the future of the corporation.
According to Peter Drucker, every organization

must ask an important question "What business
are we in?" The answer should have marketing
or external perspective and should not be
restated to the production or generic activities
of business.
Understanding Mission and Purpose:
 Organizations relate their existence to satisfying a particular need of the society. They do this in terms
of their mission and purpose.
 We can describe mission as "a statement which defines the role that an organization plays in the
society", and purpose as "anything which an organization strives for."
 In business policy, both these terms are either used jointly or singly.
 Mission strictly refers to the particular needs of the society, for instance, its information needs.
 Purpose relates to what the organization strives to achieve in order to fulfil its mission to the society.
Goals and Objectives

 Business organization translates their vision and mission into goals and objectives.
 Objectives are organization's performance targets — the results and outcomes it wants to achieve. They
function as yardsticks for tracking an organization's performance and progress.
 They provide meaning and sense of direction to organizational endeavour.
 Organizational structure and activities are designed and resources are allocated around the objectives
to facilitate their achievement.
 They also act as benchmarks for guiding organizational activity and for evaluating how the organization is
performing.
Objectives, to be meaningful to serve the intended role, must possess the following characteristics:
 Objectives should define the organization's relationship with its environment.
 They should be facilitative towards achievement of mission and purpose.
 They should provide the basis for strategic decision-making.
 They should provide standards for performance appraisal.
 They should be concrete and specific.
 They should be related to a time frame.
 They should be measurable and controllable.
 They should be challenging.
 Different objectives should correlate with each other.
 Objectives should be set within the constraints of organisational resources and external
environment.

A need for both short-term and long-term objectives: As a rule, a company's set of financial and strategic
objectives ought to include both short-term and long-term performance targets. Having quarterly or annual
objectives focuses attention on delivering immediate performance improvements. Targets to be achieved
within three to five years' prompt considerations of what to do now to put the company in position to perform
better down the road.
To achieve long-term prosperity, strategic planners commonly establish long-term objectives in seven areas:
P r of i t a bi l i ty , P r o d u c t i v i t y , Competitive Position, Employee D evelopmen t , Employee

Relations, Technological Leadership , Public Responsibili ty.
Long-term objectives represent the results expected from pursuing certain strategies, Strategies
represent the actions to be taken to accomplish long-term objectives. The time frame for objectives and
strategies should be consistent, usually from two to five years,
Short-range objectives can be identical to long-range objectives if an organization is already performing

at the targeted long-term level. For instance, if a company has an ongoing objective of 15 percent profit growth
every year and is currently achieving this objective, then the company's long-range and short-range objectives
for increasing profits coincide. The most important situation in which short-range objectives differ from
long-range objectives occurs when managers are trying to elevate organizational performance and cannot reach
the long-range target in just one year. Short-range objectives then serve as steps toward achieving long term
objective.
Strategic Management Model

 Identifying an organization's vision,
mission, goals and objectives, is the
starting point for strategic management
process.
 The strategic management process is dynamic
and continuous.
 A change in any one of the major components
in the model can necessitate a change in any
or all of the other components. For instance,
a shift in the economy could represent a
major opportunity and require a change in long-term objectives and strategies; a failure to accomplish
annual objectives could require a change in policy; or a major competitor's change in strategy could
require a change in the firm's mission.
 Therefore, strategy formulation, implementation, and evaluation activities should be performed on
a continual basis, not just at the end of the year or semi-annually. The strategic management process
never really ends.
 This model like any other model of management does not guarantee sure-shot success, but it does
represent a clear and practical approach for formulating, implementing, and evaluating strategies.

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2) Back End — It is a part of the overall software which does not

(II) Application Software

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(ii) Cloud-based Applications

 A Non-Integrated System is a system of maintaining data

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This results in two major problems:

Integrated Enterprise Resource Planning(ERP) Systems

 ERP is an enterprise-wide information system designed to coordinate all the resources,

Advantages of an ERP System

 Ability to customize an organization's requirements;

 Integrate business operations with accounting and financial reporting functions;

 Increased data security and application controls;

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 Build strong access and segregation of duties controls;

Features of an Ideal ERP System

Customer Relationship Management (CRM):

RISKS AND CONTROLS

a. Risk of unauthorised changes in data

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C. Role Based Access Control (RBAC) in ERP System

 Role-based access control is an

While assigning access to different users, following options are possible.

(i) Create — Allows to create data

(ii) Alter — Allows to alter data

(iii) View — Allows only to view data

(iv) Print — Allows to print data

Above type of access can be allowed / disallowed for —

a. Master Data b. Transaction Data c. Reports

AUDIT OF ERP SYSTEMS

 Physical Safety — Ensuring physical control over data.

BUSINESS PROCESS MODULES AND THEIR INTEGRATION WITH

What is a Business Process?

 A Business Process consists of a set of activities that are performed in coordination in an

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Business Process Flow

Business Process is a prescribed sequence of work steps performed to produce

(e) Adjustments: Appropriate adjustment entries are passed.

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1. Automated Business Process

ENTERPRISE BUSINESS PROCESSES

Categories of Business Processes

I. Operational Processes (or Primary Processes)

Order to Cash Cycle(Example)

 Customer Order: Customer order received is documented.

 Supporting Processes support core processes and functions within an

 Recruitmen t a nd Sta ffing

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 Management processes measure, monitor and control activities related to business

AUTOMATED BUSINESS PROCESSES

 Availability: To ensure that data is available when asked for; and

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 It provides clarity on the process.

 It helps to determine the sources of inefficiency, bottlenecks, and problems.

 It allows desired result with workflow automation.